Trading resumes after Nymex sets new loss limits

By

LauraMandaro

SAN FRANCISCO (MarketWatch) — Gasoline futures hit the New York Mercantile Exchange’s floor on price drops Wednesday, triggering a brief but unusual halt in oil and gasoline futures trading, and prompting the exchange to allow for even deeper losses.

The June gasoline contract
RBM11
fell 25 cents to $3.1297 a gallon, prompting CME Group
CME, -0.06%
to halt trading in crude oil, heating-oil and gasoline for five minutes.

They reopened shortly after noon Eastern, with expanded limits of $20 for crude-oil futures and 50 cents for heating-oil futures and gasoline futures, the CME said in an emailed statement.

Energy futures, already falling, added to losses after the exchange’s moves. CME Group operates the New York Mercantile Exchange and electronic trading platform CME Globex.

Gasoline settled down 26 cents, or 7.6%, at $3.123 a gallon. West Texas Intermediate crude oil for June delivery
CLM11
lost $5.67, or 5.5%, to $98.21 a barrel. Heating oil
HOM11
for June delivery lost 10 cents, or 3.4%, to $2.898 a gallon.

Under the exchange’s rules, daily price-move limits can be expanded in any of the three major petroleum products after one hits a floor or ceiling.

The moves made for another day of upheaval in commodities markets, following several sessions of sharp drops and then nearly as sudden rebounds. Efforts by the main U.S. metals exchange to quell volatility and potential risk in silver futures by multiple margin hikes, following a surge in prices to 31-year highs, have made for an added element of uncertainty to commodities trading. The CME raised margin requirements for oil on Tuesday.

Analysts said exchange halts in energy products were relatively rare.

“It’s been a long time before I can remember a halt. It doesn’t happen that open, and usually at times of volatility,” said Phil Flynn, a trader at PFG Best Research in Chicago.

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(1:32)

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“It is not very frequent,” said James Williams, an energy economist at WTRG Economics in London, Arkansas. “A short trading halt only occurs when there is high volatility in the price to give the market a little breathing space.”

The exchange’s move followed a sell-off in oil and gasoline futures Wednesday, set in motion by a range of macroeconomic and local issues — from Chinese inflation data, which bolstered expectations that policymakers in China would further hike rakes, to a jump in the dollar against the euro on worries about a Greek default, to reduced concerns about the impact of Mississippi River flooding on U.S oil refiners.

Gasoline futures had added 9% by the close of Tuesday’s regular session, from Friday, on speculation the rising river could flood refiners. Some of that speculation decreased Wednesday.

Valero Energy Corp.
VLO, -0.89%
spokesman Bill Day on Wednesday said refineries in Memphis, Tenn., and St. Charles, La., remain in operation. “At this time we do not expect any interruption,” Day wrote in an email to MarketWatch.

“The flood fears had given gasoline more of a boost. Now we’re back to a focus on fundamentals,” said Flynn.

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